I respectfully dissent from the decision of the
majority to issue a consent order against General Mills,
Inc. relating to the acquisition of the branded
ready-to-eat ("RTE") cereal and snack food
businesses of Ralcorp Holdings, Inc.
("Ralcorp"). My dissent rests on two grounds.

As noted in the Commission's complaint, General Mills
will not acquire the private label RTE cereal or snack
food businesses of Ralcorp. Ralcorp instead will form a
new entity, New Ralcorp Holdings, Inc. ("New
Ralcorp"), to hold the private label cereal and
snack food businesses that General Mills will not
acquire. Under the acquisition agreement, New Ralcorp has
the right to manufacture and sell a private label version
of the Chex RTE cereal products, but is restricted from
transferring this right to a third party without
permission from General Mills. The acquisition agreement
further provides that New Ralcorp may not produce private
label Chex products for a period of eighteen months
following consummation of the acquisition.

My first reason for voting against issuing the consent
order is that the Commission lacks sufficient evidence to
support the unilateral effects theory alleged in the
complaint. Second, it is completely unnecessary -- and in
fact creates inefficiency -- to bar enforcement of the
parties' non-compete agreement. Whatever minimal
competitive risks this transaction may raise are
adequately addressed by eliminating the restrictions on
Ralcorp's ability to transfer manufacturing and sales
rights for private label Chex to a third party.

General Mills' share of the RTE cereal market will
increase by approximately three percent as a result of
the acquisition. The number of competitors in the RTE
cereal industry will remain the same, and General Mills
will remain the second largest RTE cereal producer in the
United States.(1) New
Ralcorp will immediately assume Ralcorp's position as the
largest private label cereal producer in the United
States. Moreover, General Mills' post-merger share of the
RTE cereal market will be between 25 and 31 percent
(depending on whether share is measured in pounds or
sales dollars), well below levels suggested by the
Horizontal Merger Guidelines as the minimum threshold at
which the Commission might reasonably presume market
power.(2) It is hard to
understand under these simple facts how the majority
determined that the acquisition will enable General Mills
unilaterally to exercise market power.

Unable to presume market power, the Commission instead
relies upon a "close substitutes" theory of
unilateral harm, notwithstanding a paucity of empirical
evidence demonstrating that Ralcorp's branded Chex
products are the closest substitutes to the branded
cereals of General Mills. Although Chex products clearly
compete with the branded General Mills RTE cereal
products, consumers have a preference for variety when
they choose RTE cereals and frequently choose among the
many branded and private label cereals produced by RTE
cereal manufacturers in the United States. Not
surprisingly, Judge Wood reached this conclusion in her
opinion explaining why she refused to block the
acquisition of the Nabisco RTE cereal assets by Kraft
General Foods in early 1993.(3)
In Kraft General Foods, an empirical analysis of
cereal purchasing patterns suggested -- as it does in the
present matter -- that consumers have many attractive
alternatives from which to choose in the event that one
RTE cereal producer tries to raise prices above
competitive levels. Overall, the empirical evidence does
not support the Commission's claim, under either a
"close substitutes" or a dominant firm theory,
that General Mills would be able unilaterally to raise
the prices of its branded RTE cereals after the
acquisition.

Even if I agreed with the majority that this consent
order rests upon an empirically sound theory of
competitive harm, the order would bar General Mills from
enforcing an arguably procompetitive non-compete
agreement that is properly limited in scope and duration.
Covenants not to compete are often included in contracts
for the sale of a business, and generally are enforceable
when ancillary to an enforceable agreement and reasonable
in geographic coverage, scope of activity, and duration. Lektro-Vend
Corp. v. Vendo Co., 660 F.2d 255, 265 (7th Cir.
1981) ("The recognized benefits of reasonably
enforced non-competition covenants are now beyond
question."), cert. denied, 455 U.S. 921
(1982); United States v. Addyston Pipe & Steel
Co., 85 F. 271, 281-82 (6th Cir. 1898), aff'd as
modified, 175 U.S. 211 (1899).(4)
Judicial inquiry into non-compete provisions generally
focuses on whether the restriction is reasonably
necessary to protect the legitimate business interests of
the party seeking to enforce the provision. United
States v. Empire Gas Corp., 537 F.2d 296, 307 (8th
Cir. 1976), cert. denied, 429 U.S. 1122 (1977); Sound
Ship Bldg. Corp. v. Bethlehem Steel Corp., 387 F.
Supp. 252, 255 (D.N.J. 1975), aff'd, 533 F.2d 96
(3d Cir.), cert. denied, 429 U.S. 680 (1976).

The Commission has often recognized that competitive
benefits can flow from a non-compete clause in the
context of the sale of a business. The Commission's
recent issuance of a consent order in Ciba-Geigy,
Ltd., et al., Docket No. C-3725 (April 8, 1997), is
illustrative. In Ciba-Geigy, the Commission
imposed an affirmative obligation on the newly merged
entity, Novartis AG, not to compete in the United States
and Canada for six years in the sale of animal flea
control products.(5) As
the Ciba-Geigy order indicates, the Commission
clearly recognizes that non-compete clauses -- even when
long in duration and broad in scope -- can serve
legitimate procompetitive purposes in some circumstances
by allowing an acquiring entity a brief period to
re-deploy the acquired assets in a manner that increases
competition in the marketplace. I am therefore puzzled
why the Commission so hastily condemns a non-compete
provision here that is only eighteen months in duration,
limited to the manufacture and sale of private label Chex
products, and arguably necessary to protect the
legitimate interests of the contracting parties.(6)

Because I find that the facts do not support the
Commission's theory of unilateral competitive harm in
this instance, and because in any event I disagree with
the Commission's decision to bar enforcement of the
non-compete provision contained in the parties'
acquisition agreement, I have voted against issuance of
the consent order.

1. General Mills' share of branded cereals will of
course increase as a result of the transaction, but the
complaint does not allege a relevant market consisting of
"branded RTE cereal." Indeed, the provisions of
the order (which affect the disposition of assets used in
the production of nonbranded cereals) make sense only in
the context of an "all RTE cereal" product
market.